FCA: Don’t cut access to credit when the need is justified

At the BBA Annual Retail Banking Conference this week (June 29), Bailey said everyone is interested in the supply of financial services but that doesn’t mean every consumer should be offered the same products on the same terms.

He said: “There is also an issue around access to credit, which for me is at the heart of our interest in high-cost credit.”

In Bailey’s opinion it would not be an acceptable outcome to cut consumers off from access to credit when they have a justifiable need for it, such as to smooth erratic or lumpy income.

However, he said: “Before the headlines get written that I am justifying current household debt levels, that is not the point I am making.

“Put simply, there is a point about access to credit which is a broader public policy question, and needs to be considered as such.”

Free-if-in-credit banking

Bailey’s speech ventured onto “free-if-in-credit banking”, referring to the charges levied on some products and services by banks to balance out the “free” products.

The watchdog boss said: “No banking is free. It means some customers pay more or less than others depending on what mix of products they use.”

It was then brought to the audience’s attention that higher return products like payment protection insurance (PPI) is thought to have been created to balance out the return of products such as current accounts.

In regards to other products, Bailey said unauthorised overdrafts are one of the most obvious areas where retail banking crosses over into the high-cost credit area.

He said it is regularly argued that the cost of unauthorised overdrafts exceeds the price cap imposed on payday lending. The FCA reassured the BBA audience that it is in the process of reviewing this cost.

Bailey said the balance of cost and returns on products, as well as the characteristics of unauthorised overdrafts, begs the question: “How do we know and assess what is a fair distribution of costs and charges given the pattern of risk to the lender?”